Hopes of energy boss rest on reform drive and linking up with rival companies
Bahodirjon Sidikov, new chairman of Uzbekistan's state oil and gas company. He hopes a credit rating for the group will be a first step towards challenging the energy majors
April 11, 2019 10:27 am by Nastassia Astrasheuskaya in Tashkent
Uzbekistan’s state oil and gas company has a bold aim — to become the next Royal Dutch Shell or BP and join the ranks of the world’s energy majors.
It is early days but Uzbekneftegaz, which contributes 15 per cent of the country’s gross domestic product, has taken the first steps towards its ambitious goal by gaining the freedom from the government to act as an independent corporate entity.
The company has also appointed a new chairman, 39-year-old Bahodirjon Sidikov, to oversee its planned transformation as the group aims to take advantage of reformsimplemented across the country under president Shavkat Mirziyoyev.
Challenging the oil majors is not an unrealistic fantasy either, as Uzbekneftegaz has the size and resources to become an international force. It has 100,000-plus workers, about 30 per cent more than Shell, and the country has large energy reserves.
“Uzbekneftegaz from now on, I hope, will only play the role of a business entity and it intends to make profit,” Mr Sidikov said, referring to his first tentative moves to turn the company into a serious rival of the big groups.
“I am certain this decision will make Uzbekneftegaz a transparent international company that will prove itself not only in Uzbekistan, but also on the international markets.”
His modernising hopes have been helped by the determination of the president, who came to power in 2016 vowing to liberalise the previously closed-off autocracy of a country that is now free from Soviet-era shackles.
One of Mr Sidikov’s aims is to gain an international credit rating, which will enable the company to raise money in the bond markets.
“We are concentrating on the first stage [the international rating], but eventually we still see us going out into the market,” Mr Sidikov said.
The company expects to raise $1bn in corporate bond placement — the same amount as the country’s bond issue earlier this year — which would help it pay for business projects as well as developing operations in geological exploration and oil and gas production.
Mr Sidikov must also make the company more efficient. This is critical to allow the group to use the vast resources at the country’s disposal.
One of the company’s problems is the duplication of management roles because of its size.
One way of addressing this could be by splitting the group — one entity producing gas and one overseeing transportation via pipelines and shipping. The company also needs to update its technology to improve extracting and production techniques.
Sergei Kapitonov, gas analyst at Russia’s Skolkovo Energy Centre, said: “Uzbekneftegaz’s ambitions of becoming an international player deserve praise. But the company lacks technologies.” These are a long way behind the big groups.
To catch up, Mr Kapitonov thinks the company needs to develop partnerships with western and Russian groups. This would help financing and investment initiatives as well as developing the company’s technology.
On this front, the group is in talks with BP, the State Oil Company of Azerbaijan Republic (Socar) and Total on upstream co-operation to find and produce oil and gas. It is also linking up with the United Arab Emirates global investment group Mubadala on financing and South Korean and Japanese companies on equipment supplies.
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Additionally, there is the potential for ties with Russian energy groups such as Gazprom and Lukoil, particularly as Moscow is the dominant investor in Uzbekistan’s oil and gas sector, accounting for half of all foreign direct investment.
“In this regard, planned international partnerships with Russian and western companies are a step in the right direction,” Mr Kapitonov said.
Finally, Mr Sidikov plans to develop the company’s gas to chemicals processing arm rather than seek to ramp up the group’s exports.
This is partly to capitalise on the demand for electricity and compressed gas domestically and because of the limited export potential in a country where transport facilities and pipelines have a long way to go before they are properly modernised.
This approach is welcomed by Mr Kapitonov who thinks the company has better prospects in more efficient use of natural gas as well as transforming it into more complex and expensive products.
Mr Sidikov said: “Choosing between exporting and processing gas, we will choose processing into more of a liquid product, the sales of which will have nothing to do with logistical problems of pipeline exports.”
For Mr Sidikov, getting the basic efficiency decisions right is vital. Improving the company’s processing techniques, technology and linking up with foreign rivals will then, he hopes, clear a path for a serious challenge in the world’s energy market.